 Welcome once again to Mises Weekends. I'm Jeff Deist and you may recall that in recent weeks we've discussed the concept of negative interest rates and how such rates really represent a bizarre and unprecedented chapter in human history rather than encouraging saving, which is a very natural and very human desire to protect ourselves against the uncertainties of the future and old age. The concept of negative interest rates encourages consumption at all costs to create a supposed variety of prosperity. Now conceptually, I think negative interest rates really encapsulate one of the fundamental differences between Austrian economics and what we might call mainstream neo-Keynesian economics today. Of course, the Austrian view is that prosperity is built on saving and investments. The accumulation of capital and interest rates and the incentive they create for savers are thus one key to the whole economy. The Keynesian view, by contrast, views consumption as everything, that we build a prosperous economy through spending and therefore we should encourage in spending, whether that's at the individual level or by businesses or by government itself. So I recently discussed the concept of negative interest rates in the context of the broader disagreements between Austrian economics and Keynesian economics on a radio show entitled The Everything Financial Show with Dennis Tubergen. It lasts about 17 minutes. So stay tuned for an interview discussing how Austrian economics differs from Keynesian economics in some very profound ways. I'm pleased to have as a first-time guest on the Everything Financial Radio program today Mr. Jeff Deist, Jeff is president of the Mises Institute. He joined the Mises Institute following many years as an advisor to Ron Paul. He was congressman Paul's chief of staff during the 2012 election and press secretary in Congress from 2000 to 2006. And he is a tax attorney by training and Jeff, welcome to the program. Thank you so much. Now. It's good to be here. Jeff, let's talk a bit first for our listeners that may not be familiar with what is the Mises Institute? Well, it is primarily an organization that is committed to keeping Austrian economics alive and promoting Austrian economics. For anybody who's not familiar, Austrian economics is essentially a school of thought in economics that opposes what is today Orthodox Keynesian demand side economics. So in effect, we are trying to promote the works of certain economists and certain thinkers who really stand opposed to the economics mainstream that is starting to crumble today. Certainly, the Austrian school has seen a big resurgence. And of course, that is tied to what central banks have been doing really for the last few decades around the world. So what used to be a conventional wisdom in economics was largely supplanted around the time of the 1930s, both in the UK and in the US. And what we find ourselves living under today in terms of the economics profession is what I would call sort of a neo-Keynesian synthesis. In other words, variations on the ideas promulgated by John Maynard Keynes. And certainly, from my perspective, we're all poorer and suffering for it, both in terms of academia and our universities, but also in terms of our economy. In other words, I think that Keynesian thought has done huge damage to our economic well-being over many, many decades now. So we stand opposed to Keynesianism and we're here to provide really an educational resource, a vast website full of free literature for people who want to learn economics that's different than what's taught in universities today. So that's why we're here. And unfortunately, we're, in a sense, it's unfortunate. We're sort of counter-cyclical. In other words, interest in what Austrians have to say tends to grow when we have events like the crash of 2008 and 2009. So it sure feels, Dennis, like we're entering into another period where central banks are not going to be able to prop up asset prices. So will 2016 be a rocky year? I think the answer is yes. Well, certainly, Jeff, when one looks at commodity prices that have crashed, which are often the proverbial canary in the coal mine when it comes to stock prices and probably real estate prices again, I would agree with you. I'd like to go back and expand on the Keynesian response to use that terminology of the Federal Reserve through their various forms of quantitative easing or just outright printing of money for our listeners that may not be familiar with that term since the financial crisis. Assess how effective that policy has been and what might have been a better response. Well, when you talk about a better response, there's a better response in terms of what would be best for the economy, and then there's the reality of politics, right? When there's an economic crash in the markets, it's generally not popular for politicians to come along and say, you know, the crash is actually the cure to the bubble, not the problem. And we need to let it go and we need to let businesses unwind bad investments and we need to let bad debt be cleared from the books of not only investment houses, but also mortgage lenders. And that's going to cause a lot of bankruptcies and a lot of dislocations, a lot of pain. And it'll expose banks like, let's say, B of A, which had bought countrywide, which had a very toxic mortgage portfolio. And there's going to be a lot of blood in the streets, but gee whiz, ladies and gentlemen, that's what we need to get back to the foundations to rebuild a solid economy, one that's not based on smoke and mirrors. You know, that's not how you win in politics. You generally say, well, we got to do whatever we have to do to take the pain away today. But unfortunately, that political response is what we saw from the Fed and from other central banks during the crisis of 0809. They said, we have to fight the cure and the cure is deflation, the cure is to let bad debt be exposed. And we have to fight that with huge monetary expansion. So the problem is, is that expanding the amount of money in an economy, whether that's base money that just circulates among banks, in other words, bank reserves, or whether that's actual lent money that increases the M3 money supply in the general population, neither of those actions creates any more goods or services, right? Money is not goods or services, money is just a means of exchange. So, you know, the idea here is that we ever and always have to fight deflation when in fact deflation is a healthy thing and a necessary thing, not only to raise our standards of living, but also to correct bubbles, but that we also have to endlessly create demand, right? If we had to pinpoint one element of Keynesianism that has stuck with us through thick and thin, it's that lots and lots of economists believe that the goal of monetary and fiscal policy is to stimulate demand, right? But humans don't need to have demand stimulated. Humans have endless appetites for more stuff, for more goods and services. That's just natural. Ever since we came up out of caves, right, we've wanted more stuff. So, you know, it's not a matter of whether we have demands for stuff, it's whether or not we have the means to pay for it. So, I would argue that the Austrian school stands opposed to this principle that aggregate demand is key. The Austrian school would say on the contrary, interest rates are really the key factor in understanding the economy. So, this idea that we can just always create more demand sounds great, but if we're actually getting more productive, we're not actually growing the economy. If we're not actually becoming richer, but we're just becoming more indebted and we have more credit, then that's not the way to build a healthy economy. And what we're doing is we're creating a house of cards. And each time the house of cards gets a little bigger and when it starts to crumble, we try to sort of reinflate the bubble. We kick the can down the road. And my fear is that we create something that's going to be bigger and uglier than 2008, 2009, which would be very painful for a lot of people. So, it's a scary time, but you know, the really fearful thing is not what's happening in the markets or what the next crash is going to be. What's really frightening is that the mainstream academics and the financial press and the political class have gotten away with creating enormous myths, enduring myths that are accepted by a majority of the public. And one of the great myths is that we need to stimulate demand. We need to make people want more stuff. And if people just want more stuff and spend more money, then we'll be better off. When we know the opposite is true, the basis of a healthy and prosperous society is when people save money, when people accumulate capital, when both businesses and households and individuals bring in a little bit more than they spend. Because that's what creates the excess. That's what creates the capital accumulation that is then available for investment into new ventures. It's not just spending that makes us rich, it's saving. This is so fundamental and ought to be so obvious, Dennis, but we lose sight of it because the financial news seems so complex. And now you take a look at negative interest rates by central banks in Europe and now just more recently in Japan, where excess reserves now actually are by banks. So there's a charge to deposit them with a central bank. Is this the last desperate act of central banks? Boy, it sure seems like it. It's just another tool, if you want to call it that, in the toolbox of central bankers to kind of obscure what's really going on. If we think about it conceptually, there's no scenario in which rational people would say, I have $1,000, I'll loan you that $1,000 in exchange for you repaying me $900 a year from now. Conceptually, that just doesn't make sense, negative interest rates. We would always say, hey, as a lender, I'm going to give up having $1,000 today or the things I could buy with that $1,000 today in exchange for lending it to you and over time maybe getting back $1,100 for you. So I'm comfortable enough that rather than consuming that $1,000 today, I'm going to give it to you so that over time I'm going to be even better off and have $1,100. And on the other side, the borrower says, gee, I want to buy something for $1,000 today so much, I want it so badly that I'm willing to pay $1,100 for it over time so I can have it today rather than saving up. That's what interest rates are all about. They're about the time preferences of the lender and the time preferences of the borrower. So the only scenario in which someone would lend you $1,000 today so that you can repay them $900 sometime in the future, which is what negative interest rates either on a savings or checking account or on a bond or whatever it might be, the only reason someone would do that is because we're in an environment where fiscal and monetary policy is so bad that our money is losing value. And so negative interest rates are almost an insurance policy. We almost have to look at them as an insurance product. We're some, let's say, a wealthy person with $1,000 to invest. As you know, I'm so worried about my $1,000 turning into $700 or $500 that I'm actually willing to give it to buy this bond with it that promises at least to pay me back $900. So I'm locking in that I'm only going to lose $100. So in that sense, you can say negative interest rates make sense because I'm at least capping my loss. It's like insurance. So you really have to wonder. You have to start to wonder when the so-called mainstream economists who advise central banks when they start talking about negative interest rates, you have to start to wonder what kind of bizarro world we're living in. And I think you really need to look at financial news in a way that cuts through this and says, you know, if we think about it conceptually, if we stop worrying about all the details about what central bankers are saying and just think about it conceptually, something's very, very wrong. Now, maybe some people are smart enough to figure all this out and spend 16 hours a day punching numbers, you know, into their models and say, well, I figured out the timing of all this. So I'm actually going to make money shorting stocks or whatever it might be. But for the average person who doesn't have 16 hours a day and doesn't have complex mathematical models and doesn't have enough capital to risk because they have to worry about their mortgage or their kids or college bonds or whatever it might be. I think you have to just look at it conceptually and say, how can I protect myself? How can I stay out of this bizarro casino and try to build some wealth that's based on something enduring rather than trying to figure out what stocks or bonds I should buy? Because central bankers are basically saying, if you want to save money, you're a chump and we're going to punish you. And there's never been a time in the history of the West where we've told people, especially older people, if you want to save money for a rainy day, you're a chump. And that's where we are today. So I assume that most of you listening to this interview, that doesn't sit well with you. And it certainly doesn't sit well with me.